Earlier today, the greenback improved against five major currencies. However, it slipped vs. the British pound after data showed that U.K. retail sales increased by 2.6% in December, far above expectations for a 0.4% rise. Speaking of economic data… The report that may improve the dollar’s outlook is the University of Michigan/Thomson Reuters consumer sentiment index for January. Will it support the U.S. Dollar in the following hours? Before we know the answer to this question, let’s take a look at the current situation in major currency pairs. We invite you to read our today's Forex Trading Alert.
Forex Trading Positions - Summary:
- EUR/USD: open a short position with a stop-loss at 1.3699 only if EUR/USD closes below 1.3588
- GBP/USD: short position (stop-loss level: 1.6515)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: long position (stop-loss level: 0.8985)
- AUD/USD: none
EUR/USD
On the above chart, we see that although EUR/USD rebounded after reaching the 76.4% Fibonacci retracement (based on the recent upward move), this upswing didn’t change the current situation. The pair still remains in a consolidation range (marked with the light blue rectangle) slightly above the medium-term rising support line (seen on the weekly chart). What we wrote in our last Forex Trading Alert remains up-to-date also today.
(…) if EUR/USD declines below Friday’s low at 1.3573 (which is reinforced by the support line created by the Nov. 20 high that successfully stopped further declines in the previous week) we will likely see further deterioration – especially when we take into account the fact that such a drop will also mean a decline below the medium-term rising support line. In this case, the first downside price target will be around 1.3457 (this level intersects with the 38.2% Fibonacci retracement level based on the entire March-December rally).
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): if the pair closes the day below the medium-term support line, we will suggest opening short positions. The stop-loss level for such a position would be at 1.3699. The first downside price target would be around 1.3457. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
Looking at the above chart, we see that the situation has improved as GBP/USD reversed course and rebounded earlier today. With this upswing, the pair came back above the previously-broken lower border of the rising wedge and short-term declining support line, which is a bullish sign. Therefore, if GBP/USD closes the day above these lines, the breakdown will be invalidated and the short-term outlook will turn to bullish. Nevertheless, as long as the pair remains below the upper line of the rising wedge, the space for further growth seems limited.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): short. The stop-loss level for this position is at 1.6515. The first downside price target is around 1.6190. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/JPY
Quoting our previous Forex Trading Alert:
(…) the bodies of the consecutive white candlesticks are getting smaller, which suggests that the strength of the buyers waned in the recent days. If this is the case, and USD/JPY closes the day below 104.91 we will likely see a pause or even a pullback in the coming days.
On the above chart, we see that we saw such price action and the pair not only closed below 104.91 yesterday, but it also remains below this level today. Taking this fact into account, we maintain our yesterday’s assumption that a pause or even a pullback in the coming days is quite likely.
Please note that although the exchange rate went up, it still remains below the previously-broken short-term rising line (the breakdown is confirmed), which will likely stop further improvement (similarly to what we saw in the previous week). On top of that, slightly below this line is the 61.8% Fibonacci retracement level, which supports the sellers. Connecting the dots, even if we see a continuation of a rally, the space for further growth seems limited.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: bullish
LT outlook: bearish
Trading position (short-term): we do not suggest opening any trading positions at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CAD
On the above chart, we see that after an invalidation of the small breakout above the upper line of the rising trend channel (which was a negative signal), USD/CAD still remains slightly below this strong resistance line. Although this is a positive signal, it seems that further deterioration is just around the corner - especially when we factor in the position of the indicators. The RSI is still overbought and sell signals generated by two other indicators remain in place supporting the bearish case.
Very short-term outlook: mixed with bearish bias
Short-term outlook: bullish
MT outlook: bullish
LT outlook: bearish
Trading position (short-term): we do not suggest opening short positions yet because the pair hasn’t invalidated a small breakout above the long-term declining support/resistance line on the weekly chart and it still serves as support. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
Looking at the above chart, we see that the situation hasn’t changed much. Despite yesterday’s drop, USD/CHF remains in a consolidation range slightly above the short-term declining support/resistance line. If the pair breaks above Wednesday’s high, we will likely see further improvement and the first upside target will be the 38.2% Fibonacci retracement level. However, we may see an upswing even to around 0.9187 where the price target for the pattern (in this case a consolidation) is.
As you see on the daily chart, the RSI and CCI are not overbought and the buy signal generated by the Stochastic Oscillator remains in place supporting buyers.
Very short-term outlook: bullish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): long. The stop-loss level for this position is at 0.8985. The upside price target is around 0.9160. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
AUD/USD
On the above chart, we see that the situation hasn’t changed much, therefore what we wrote in out last Forex Trading Alert remains up-to-date.
(...) AUD/USD broke below the very short-term support line, which triggered a sharp decline that took the pair not only to the December low, but also a new annual low (at the 76.4% Fibonacci retracement level).
If this support encourage the buyers, we will likely see an upward correction from here. However, taking into account the position of the indicators, it seems that the bearish scenario is more likely. If this is the case, we will likely see further deterioration and the next price target will be the 78.6% Fibonacci retracement, which intersects with the lower border of the declining trend channel.
(...) it seems that the space for further declines is limited because a strong support zone (slightly below the current level) may pause or even stop further deterioration.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): we do not suggest opening short positions at the moment as it seems that the space for further declines is limited by the strong support zone created by the 78.6% Fibonacci retracement and the lower border of the declining trend channel. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
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